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USD dips to over a one-year low on inflation data

 

Thursday, July 13, 2023

Today’s headlines

What’s happening: The US dollar recorded losses on Wednesday, following the release of inflation data.

What happened: The greenback plunged to its weakest level in over a year after data showed US consumer prices easing in June.

One of the major currencies climbed to its highest level against the US dollar since March 2022.

Why it matters: Data released on Wednesday showed US annual inflation rate falling to 3% in June, the lowest level since March 2021. The latest reading compared with a 4% inflation rate in May and came in lower than market expectations of 3.1%.

On a month-on-month basis, the country’s core consumer prices increased just 0.2% in June, below estimates of a 0.3% rise.

The slowdown in consumer prices led to speculations of the US Federal Reserve hiking interest rates only once this year, exerting pressure on the greenback.

The inflation data resulted in the greenback extending its losses following the jobs report released last week. The US economy added 209,000 jobs last month, following an addition of 306,000 jobs in May. Economists were projecting 225,000 job adds. The unemployment rate in the country eased to 3.6% in June, from 3.7% in May, with average hourly earnings rising by 0.4% in June, topping market views of 0.3% growth.

Markets still expect the US Fed to hike rates by 25 bps to a 5.25%-5.5% range at the July meeting but see a lower possibility of a further rate increase before yearend.

The US dollar index fell more than 1% to as low as 100.52, reaching the weakest level since April 2022. The greenback tumbled to its weakest level versus the Swiss franc since early 2015 following the inflation data. The USD/JPY forex pair also declined to a six-week low on Wednesday.

The EUR/USD pair climbed to its highest level since March 2022 of 1.1130, while the GBP/USD forex pair hit a new 15-month high.

What to watch: Traders now await the release of the US producer price index today. Producer prices for final demand in the US had declined by 0.3% month-on-month in May is expected to increase 0.1% in June.

Markets will also watch data on initial jobless claims, which is also scheduled for release today.

The markets today

UK stocks will be in focus today ahead of a basket of economic reports

Context: London stocks closed higher on Wednesday after major lenders successfully cleared the Bank of England’s stress test.

Details: UK stocks outperformed their European rivals during Wednesday’s session, driven by a strong performance of British banks following the Bank of England’s annual check-up.

The central bank’s annual stress test of major lenders showed that all institutions are well-prepared to withstand the stressed economic environment. As a result, no bank was required to provide revised capital plans.

UK’s inflation level remained much higher than the US. Britain’s consumer price inflation came in at 8.7% in May, while US inflation eased to 3% in June, from 4% in May.

The recent hot labour market report from the UK also increased prospects of further rate hikes by the BoE. Data released on Tuesday showed average weekly earnings, including bonuses in the UK, increasing by 6.9% year-over-year to £651 per week in the three months to May, the highest surge since the three months to August 2021.

Markets anticipate more interest rate hikes in UK than was earlier expectations.

London’s FTSE 100 gained 1.83% to close at 7,416.11 on Wednesday, the most in more than eight months. The STOXX Europe 600 Index added 1.51%.

What are expectations: Investors await the release of economic data on UK’s GDP, industrial production and balance of trade today. The British economy, which grew by 0.2% in April, is expected to contract by 0.2% in May. Analysts expect industrial production to decline 0.2% in May, following a 0.3% contraction in the previous month. The UK trade deficit, which shrank to £1.52 billion in April, is projected to increase to £2.2 billion in May.

Other Markets: US trading indices closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.25%, 0.74% and 1.24%, respectively.

The news shaping the markets

Ukraine’s President Volodymyr Zelenskyy said he had a “very good, powerful meeting” with US President Joe Biden on the sidelines of the NATO Summit. The news sent the safe-haven US dollar index slightly lower this morning.


Australia’s consumer inflation expectations came in at 5.2% in July, unchanged versus the prior month, lending support to the AUD/USD forex pair.


The Bank of Korea maintained its base rate unchanged at 3.5% at its latest meeting, which sent the KRW/USD pair lower in forex trading this morning.


New Zealand’s electronic card transactions increased 1% to NZ$6,297 million in June, after declining 1.7% a month ago, which lent support to the NZD/USD forex pair.


Russia’s annual inflation rate increased to 3.2% in June, from 2.5% in May. However, the latest reading coming in lower than market estimates of 3.3% sent the RUB/USD pair higher in forex trading this morning.

What else to watch today

UK’s goods trade balance, manufacturing production and construction output, France’s consumer price inflation, Turkey’s retail sales and foreign exchange reserves, Eurozone’s industrial production and ECB monetary policy meeting accounts, South Africa’s mining production, gold production and SACCI business confidence index, US natural gas stocks change and government budget, Indonesia’s total car sales, Saudi Arabia’s industrial production and consumer price index, as well as Argentina’s inflation rate.


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